It is strange to see the equivalent of a political campaign over succession at the US Federal Reserve. After all, the chair is a presidential appointment, subject to Senate confirmation. It is not an election and, in the past, deliberations over these appointments have always been private. However, leaks have fed a widespread perception that President Barack Obama will soon nominate either Lawrence Summers, his former chief economic adviser and former Treasury secretary, or Janet Yellen, the current vice-chair of the Fed board of governors, to the four-year term that begins in late January. Supporters of each, including some in the White House, are campaigning publicly, trying to sway the president.
But this decision should not involve popularity or politics. Nor, like Supreme Court appointments, does it need to consider questions of balance. And it is not, like cabinet appointments, a matter of appointing an adviser to the president. Quite the contrary. The Fed is both independent of the executive branch and, more important, the most powerful group of financial firefighters on earth. So its chair is the world’s most important crisis manager. It was the Fed’s massive intervention that saved the world from a full-on global depression, following the collapse of credit markets in late 2008. Given recent history, it is just a matter of time before its emergency tools are required again. Continue reading »